Re-aging old card debt can land you in court

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

Dear Opening Credits,
I am being sued for a past
due credit card balance that happened about seven to eight years ago. I think I
may have re-aged the debt by answering a phone call. My house is in my name.
This story is not as cut and dried as it sounds. Do you have any advice to give
me??? The debt has more than doubled in the past eight years from $4,000 to $14,000.
I don't know how to pay that back. HELP!!! -- Tanya

Dear Tanya,
Not to worry, help is here! I'm
happy to inform you of your legal rights and explain how you can go about
rectifying this problem. Once you know how you're protected and what to do, you
can deal with this situation appropriately.

According to your first sentence,
you are being sued for a debt. However, I wonder if you really are. It's
possible that you're just receiving threatening letters and calls from a
collection agency. Sometimes they sound like they're in the process of a
lawsuit when they're not. Or not yet, anyway.

I'm guessing that what happened is
this: First your debt was with your credit card issuer. You never paid it, so
they sold the account to a collection agency. One of their employees tried to
reach you to inspire a payment, to no avail.

The lawsuit clock began ticking the day
your original creditor charged the debt off. State law dictates how long a creditor has to sue you for that balance. It can be anywhere from three to 10 years. If
that time period is still in effect, you can be sued. But if it's passed, you
can't be taken to court for it. Unless...

You re-aged or reaffirmed the debt. I
really hope you did not, because that would mean that you started the clock
again by promising to pay.

Think back. At some point you
eventually did talk with the collector. Did you acknowledge that you owed the
money and say or write that you'd begin making payments? If so, you may have
reaffirmed the debt. And in that case, if you did not fulfill your promise,
they can sue you for the balance due.

However, if you did not commit to
sending any money and the statute of limitations has passed, you're in the
clear. You can tell them that you do not want to be contacted again, and if
they persist, you can send a cease-and-desist letter, as that will prevent
further communication. The debt should not appear on your credit report either,
because such negative notations can only remain for seven years.

This is why it's so important to not
restart the statute of limitations clock when the debt has run its legal
course. Collection agencies know how it works, and are hoping that you do not.
They bought the account for a percentage
of what you really owe, and are eager to turn a profit instead of losing their
investment. If they can get you to sign a payment agreement or send a check,
they've done their job.

Now, if you did reaffirm the account,
you should deal with it right away. The collection agency can sue you (and may
already be doing so). If you lose the case, you could also be subject to wage garnishments and other post-judgment nastiness. Can they take your house?
That's not likely, but if you have other non-exempt assets, they can seize
them.

Your options for resolution include
paying in full, making installment payments or offering a debt settlement. This
last one may be your best bet, since they would still make money if you paid
more than what they did when they purchased the account. If all else fails, you
can also file for bankruptcy and wipe the mess away for good.

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Published: November 21, 2012

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